The driver of this fragility is that 75% of a typical American families
budget (not counting education costs of kids) is dedicated to fixed
expenses. This means that the loss a small as 10% in a family's income
would be sufficient to force failure. Combine this fragility with
increasing income volatility and even the slightest shock will set off
a wave of extreme frugality and mushrooming financial failure at the
household level. In the past, we were able to hide this fragility
through increased debt/bubbles. That's over. We've already taken on
as much debt (375% of GDP right now, and still climbing) as we can
acquire and the banks are hoarding the bulk of federal cash infusions
to paper over their insolvency (almost all of the toxic assets from
last fall's debacle are still in place, and more are en route from
commercial real-estate).

Robb's diagnosis? Retail sales will not recover in the near future, which will continue a spiral that will drive down home prices and drive up unemployment -- which will drive down retail sales even more, and so on.

From where I sit, Robb's leading argument makes sense. We recently sat down to look at our own family budget to discover that essentially 80% of what we spend is fixed -- and not easily discarded. When I was growing up, trimming around the edges of our lower middle income family budget could create sizable savings in expenses; not anymore.

I'm not sure how I feel about his following argument -- the one that maps out the impact of this loss of budget flexibility. The potential fallout is pretty huge, but I'm also aware that there is a huge amount of wealth (imaginary and otherwise) being pushed around the board just out of our sight. Presumably, to keep the world economy from going to the dogs Robb sees howling at the door.

The driver of this fragility is that 75% of a typical American families
budget (not counting education costs of kids) is dedicated to fixed
expenses. This means that the loss a small as 10% in a family's income
would be sufficient to force failure. Combine this fragility with
increasing income volatility and even the slightest shock will set off
a wave of extreme frugality and mushrooming financial failure at the
household level. In the past, we were able to hide this fragility
through increased debt/bubbles. That's over. We've already taken on
as much debt (375% of GDP right now, and still climbing) as we can
acquire and the banks are hoarding the bulk of federal cash infusions
to paper over their insolvency (almost all of the toxic assets from
last fall's debacle are still in place, and more are en route from
commercial real-estate).

Robb's diagnosis? Retail sales will not recover in the near future, which will continue a spiral that will drive down home prices and drive up unemployment -- which will drive down retail sales even more, and so on.

From where I sit, Robb's leading argument makes sense. We recently sat down to look at our own family budget to discover that essentially 80% of what we spend is fixed -- and not easily discarded. When I was growing up, trimming around the edges of our lower middle income family budget could create sizable savings in expenses; not anymore.

I'm not sure how I feel about his following argument -- the one that maps out the impact of this loss of budget flexibility. The potential fallout is pretty huge, but I'm also aware that there is a huge amount of wealth (imaginary and otherwise) being pushed around the board just out of our sight. Presumably, to keep the world economy from going to the dogs Robb sees howling at the door.